罗斯公司理财英文练习题附带答案第九章

CHAPTER9

RiskAnalysis,RealOptions,andCapitalBudgeting

MultipleChoiceQuestions:

I.DEFINITIONS

SCENARIOANALYSIS

b1.Ananalysisofwhathappenstotheestimateofthenetpresentvalue

whenyouexamineanumberofdifferentlikelysituationsiscalled

_____analysis.

a.forecasting

b.scenario

c.sensitivity

d.simulation

e.break-even

Difficultylevel:Easy

SENSITIVITYANALYSIS

c2.Ananalysisofwhathappenstotheestimateofnetpresentvaluewhen

onlyonevariableischangediscalled_____analysis.

a.forecasting

b.scenario

c.sensitivity

d.simulation

e.break-even

Difficultylevel:Easy

SIMULATIONANALYSIS

d3.Ananalysiswhichcombinesscenarioanalysiswithsensitivityanalysis

iscalled_____analysis.

a.forecasting

b.scenario

c.sensitivity

d.simulation

e.break-even

Difficultylevel:Easy

BREAK-EVENANALYSIS

e4.Ananalysisoftherelationshipbetweenthesalesvolumeandvarious

measuresofprofitabilityiscalled_____analysis.

a.forecasting

b.scenario

c.sensitivity

d.simulation

e.break-even

Difficultylevel:Easy

VARIABLECOSTS

a5.Variablecosts:

a.changeindirectrelationshiptothequantityofoutputproduced.

b.areconstantintheshort-runregardlessofthequantityofoutput

produced.

c.reflectthechangeinavariablewhenonemoreunitofoutputis

produced.

d.aresubtractedfromfixedcoststocomputethecontributionmargin.

e.formthebasisthatisusedtodeterminethedegreeofoperating

leverageemployedbyafirm.

Difficultylevel:Easy

FIXEDCOSTS

b

6.Fixedcosts:

a.changeasthequantityofoutputproducedchanges.

b.areconstantovertheshort-runregardlessofthequantityofoutput

produced.

c.reflectthechangeinavariablewhenonemoreunitofoutputis

produced.

d.aresubtractedfromsalestocomputethecontributionmargin.

e.canbeignoredinscenarioanalysissincetheyareconstantoverthe

lifeofaproject.

Difficultylevel:Easy

ACCOUNTINGBREAK-EVEN

c

7.Thesaleslevelthatresultsinaproject’snetincomeexactly

equalingzeroiscalledthe_____break-even.

a.operational

b.leveraged

c.accounting

d.cash

e.presentvalue

Difficultylevel:Easy

PRESENTVALUEBREAK-EVEN

e

8.Thesaleslevelthatresultsinaproject’snetpresentvalueexactly

equalingzeroiscalledthe_____break-even.

a.operational

b.leveraged

c.accounting

d.cash

e.presentvalue

Difficultylevel:Easy

II.CONCEPTS

SCENARIOANALYSIS

b9.Conductingscenarioanalysishelpsmanagersseethe:

a.impactofanindividualvariableontheoutcomeofaproject.

b.potentialrangeofoutcomesfromaproposedproject.

c.changesinlong-termdebtoverthecourseofaproposedproject.

d.possiblerangeofmarketpricesfortheirstockoverthelifeofa

project.

e.allocationdistributionoffundsforcapitalprojectsunderconditions

ofhardrationing.

Difficultylevel:Easy

SENSITIVITYANALYSIS

b10.Sensitivityanalysishelpsyoudeterminethe:

a.rangeofpossibleoutcomesgivenpossiblerangesforeveryvariable.

b.degreetowhichthenetpresentvaluereactstochangesinasingle

variable.

c.netpresentvaluegiventhebestandtheworstpossiblesituations.

d.degreetowhichaprojectisreliantuponthefixedcosts.

e.levelofvariablecostsinrelationtothefixedcostsofaproject.

Difficultylevel:Easy

SENSITIVITYANALYSIS

c11.Asthedegreeofsensitivityofaprojecttoasinglevariablerises,

the:

a.lowertheforecastingriskoftheproject.

b.smallertherangeofpossibleoutcomesgivenapre-definedrangeof

valuesforthe

input.

c.moreattentionmanagementshouldplaceonaccuratelyforecastingthe

futurevalueof

thatvariable.

d.lowerthemaximumpotentialvalueoftheproject.

e.lowerthemaximumpotentiallossoftheproject.

Difficultylevel:Medium

SENSITIVITYANALYSIS

c12.Sensitivityanalysisisconductedby:

a.holdingallvariablesattheirbaselevelandchangingtherequired

rateofreturn

assignedtoaproject.

b.changingthevalueoftwovariablestodeterminetheirinterdependency.

c.changingthevalueofasinglevariableandcomputingtheresulting

changeinthe

currentvalueofaproject.

d.assigningeitherthebestortheworstpossiblevaluetoeachvariable

andcomparingthe

resultstothoseachievedbythebasecase.

e.managersafteraprojecthasbeenimplementedtodeterminehoweach

variablerelates

tothelevelofoutputrealized.

Difficultylevel:Medium

SENSITIVITYANALYSIS

d13.Toascertainwhethertheaccuracyofthevariablecostestimatefora

projectwillhave

mucheffectonthefinaloutcomeoftheproject,youshouldprobably

conduct_____

analysis.

a.leverage

b.scenario

c.break-even

d.sensitivity

e.cashflow

Difficultylevel:Easy

SIMULATION

d14.Simulationanalysisisbasedonassigninga_____andanalyzingthe

results.

a.narrowrangeofvaluestoasinglevariable

b.narrowrangeofvaluestomultiplevariablessimultaneously

c.widerangeofvaluestoasinglevariable

d.widerangeofvaluestomultiplevariablessimultaneously

e.singlevaluetoeachofthevariables

Difficultylevel:Medium

SIMULATION

e15.Thetypeofanalysisthatismostdependentupontheuseofacomputer

is_____

analysis.

a.scenario

b.break-even

c.sensitivity

d.degreeofoperatingleverage

e.simulation

Difficultylevel:Easy

VARIABLECOSTS

d16.Whichoneofthefollowingismostlikelyavariablecost

a.officerent

b.propertytaxes

c.propertyinsurance

d.directlaborcosts

e.managementsalaries

Difficultylevel:Easy

VARIABLECOSTS

a17.Whichofthefollowingstatementsconcerningvariablecostsis(are)

correct

I.Variablecostsminusfixedcostsequalmarginalcosts.

II.Variablecostsareequaltozerowhenproductionisequaltozero.

III.Anincreaseinvariablecostsincreasestheoperatingcashflow.

a.IIonly

b.IIIonly

c.IandIIIonly

d.IIandIIIonly

e.IandIIonly

Difficultylevel:Medium

VARIABLECOSTS

a18.Allelseconstant,asthevariablecostperunitincreases,the:

a.contributionmargindecreases.

b.sensitivitytofixedcostsdecreases.

c.degreeofoperatingleveragedecreases.

d.operatingcashflowincreases.

e.netprofitincreases.

Difficultylevel:Medium

FIXEDCOSTS

c19.Fixedcosts:

I.arevariableoverlongperiodsoftime.

II.mustbepaidevenifproductionishalted.

III.aregenerallyaffectedbytheamountoffixedassetsownedbyafirm.

IV.perunitremainconstantoveragivenrangeofproductionoutput.

a.IandIIIonly

b.IIandIVonly

c.I,II,andIIIonly

d.I,II,andIVonly

e.I,II,III,andIV

Difficultylevel:Medium

CONTRIBUTIONMARGIN

c20.Thecontributionmarginmustincreaseas:

a.boththesalespriceandvariablecostperunitincrease.

b.thefixedcostperunitdeclines.

c.thegapbetweenthesalespriceandthevariablecostperunitwidens.

d.salespriceperunitdeclines.

e.thesalespriceminusthefixedcostperunitincreases.

Difficultylevel:Medium

ACCOUNTINGBREAK-EVEN

a21.Whichofthefollowingstatementsarecorrectconcerningthe

accountingbreak-even

point

I.Thenetincomeisequaltozeroattheaccountingbreak-evenpoint.

II.Thenetpresentvalueisequaltozeroattheaccountingbreak-even

point.

III.Thequantitysoldattheaccountingbreak-evenpointisequaltothe

totalfixedcosts

margin.

plusdepreciationdividedbythecontribution

IV.Thequantitysoldattheaccountingbreak-evenpointisequaltothe

totalfixedcosts

a.IandIIIonly

b.IandIVonly

c.IIandIIIonly

d.IIandIVonly

e.I,II,andIVonly

dividedbythecontributionmargin.

Difficultylevel:Medium

ACCOUNTINGBREAK-EVEN

b22.Allelseconstant,theaccountingbreak-evenlevelofsaleswill

decreasewhenthe:

a.fixedcostsincrease.

b.depreciationexpensedecreases.

c.contributionmargindecreases.

d.variablecostsperunitincrease.

e.sellingpriceperunitdecreases.

Difficultylevel:Medium

PRESENTVALUEBREAK-EVEN

d23.Thepointwhereaprojectproducesarateofreturnequaltothe

requiredreturnis

knownasthe:

a.pointofzerooperatingleverage.

b.internalbreak-evenpoint.

c.accountingbreak-evenpoint.

d.presentvaluebreak-evenpoint.

e.internalbreak-evenpoint.

Difficultylevel:Easy

PRESENTVALUEBREAK-EVEN

b24.Whichofthefollowingstatementsarecorrectconcerningthepresent

valuebreak-even

pointofaproject

I.Thepresentvalueofthecashinflowsequalstheamountoftheinitial

investment.

II.Thepaybackperiodoftheprojectisequaltothelifeoftheproject.

III.Theoperatingcashflowisatalevelthatproducesanetpresent

valueofzero.

IV.Theprojectneverpaysbackonadiscountedbasis.

a.IandIIonly

b.IandIIIonly

c.IIandIVonly

d.IIIandIVonly

e.I,III,andIVonly

Difficultylevel:Medium

INVESTMENTTIMINGDECISION

b25.Theinvestmenttimingdecisionrelatesto:

a.howlongthecashflowslastonceaprojectisimplemented.

b.thedecisionastowhenaprojectshouldbestarted.

c.howfrequentlythecashflowsofaprojectoccur.

d.howfrequentlytheinterestonthedebtincurredtofinanceaproject

iscompounded.

e.thedecisiontoeitherfinanceaprojectovertimeorpayoutthe

initialcostincash.

Difficultylevel:Medium

OPTIONTOWAIT

e26.Thetimingoptionthatgivestheoptiontowait:

I.maybeofminimalvalueiftheprojectrelatestoarapidlychanging

technology.

II.ispartiallydependentuponthediscountrateappliedtotheproject

beingevaluated.

III.isdefinedasthesituationwhereoperationsareshutdownfora

periodoftime.

IV.hasavalueequaltothenetpresentvalueoftheprojectifitis

startedtodayversusthe

netpresentvalueifitisstartedatsomelaterdate.

a.IandIIIonly

b.IIandIVonly

c.IandIIonly

d.II,III,andIVonly

e.I,II,andIVonly

Difficultylevel:Challenge

OPTIONTOEXPAND

b27.Lastmonthyouintroducedanewproducttothemarket.Consumerdemand

hasbeen

overwhelmingandappearsthatstrongdemandwillexistoverthelong-

term.Giventhis

situation,managementshouldconsidertheoptionto:

a.suspend.

b.expand.

c.abandon.

d.contract.

e.withdraw.

Difficultylevel:Easy

OPTIONTOEXPAND

c28.Includingtheoptiontoexpandinyourprojectanalysiswilltendto:

a.extendthedurationofaprojectbutnotaffecttheproject’snet

presentvalue.

b.increasethecashflowsofaprojectbutdecreasetheproject’snet

presentvalue.

c.increasethenetpresentvalueofaproject.

d.decreasethenetpresentvalueofaproject.

e.havenoeffectoneitheraproject’scashflowsoritsnetpresent

value.

Difficultylevel:Medium

SENSITIVITYANDSENARIOANALYSIS

d

29.Theoretically,theNPVisthemostappropriatemethodtodetermine

theacceptabilityofaproject.Afalsesenseofsecuritycanbe

overwhelmthedecision-makerwhentheprocedureisappliedproperly

andthepositiveNPVresultsareacceptedblindly.Sensitivityand

scenarioanalysisaidintheprocessby

a.changingtheunderlyingassumptionsonwhichthedecisionisbased.

b.highlightstheareaswheremoreandbetterdataareneeded.

c.providingapictureofhowaneventcanaffectthecalculations.

d.Alloftheabove.

e.Noneoftheabove.

Difficultylevel:Medium

DECSIONTREE

a

30.Inordertomakeadecisionwithadecisiontree

a.onestartsfarthestoutintimetomakethefirstdecision.

b.onemustbeginattime0.

c.anypathcanbetakentogettotheend.

d.anypathcanbetakentogetbacktothebeginning.

e.Noneoftheabove.

Difficultylevel:Medium

DECISIONTREE

c31.Inadecisiontree,theNPVtomaketheyes/nodecisionisdependent

on

a.onlythecashflowsfromsuccessfulpath.

b.onthepathwheretheprobabilitiesadduptoone.

c.allcashflowsandprobabilities.

d.onlythecashflowsandprobabilitiesofthesuccessfulpath.

e.Noneoftheabove.

Difficultylevel:Medium

DECISIONTREE

e32.Inadecisiontree,cautionshouldbeusedinanalysisbecause

a.earlystagedecisionsareprobablyriskierandshouldnotlikelyuse

thesamediscountrate.

b.ifanegativeNPVisactuallyoccurring,managementshouldoptoutof

theprojectandminimizetheirloss.

c.decisiontreesareonlyusedforplanning,notactuallydaily

management.

d.BothAandC.

e.BothAandB.

Difficultylevel:Medium

SENSITIVITYANALYSIS

d33.SensitivityanalysisevaluatestheNPVwithrespectto

a.changesintheunderlyingassumptions.

b.onevariablechangingwhileholdingtheothersconstant.

c.differenteconomicconditions.

d.Alloftheabove.

e.Noneoftheabove.

Difficultylevel:Medium

SENSITIVITYANALYSIS

d34.Sensitivityanalysisprovidesinformationon

a.whethertheNPVshouldbetrusted,itmayprovideafalsesenseof

securityifallNPVsarepositive.

b.theneedforadditionalinformationasittestseachvariablein

isolation.

c.thedegreeofdifficultyinchangingmultiplevariablestogether.

d.BothAandB.

e.BothAandC.

Difficultylevel:Medium

FIXEDCOSTS

b35.Fixedproductioncostsare

a.directlyrelatedtolaborcosts.

b.measuredascostperunitoftime.

c.measuredascostperunitofoutput.

d.dependentontheamountofgoodsorservicesproduced.

e.Noneoftheabove.

Difficultylevel:Medium

VARIABLECOSTS

d36.Variablecosts

a.changeasthequantityofoutputchanges.

b.arezerowhenproductioniszero.

c.areexemplifiedbydirectlaborandrawmaterials.

d.Alloftheabove.

e.Noneoftheabove.

Difficultylevel:Easy

SENSITIVITYANALYSIS

b37.AninvestigationofthedegreetowhichNPVdependsonassumptions

madeaboutanysingularcriticalvariableiscalleda(n)

a.operatinganalysis.

b.sensitivityanalysis.

c.marginalbenefitanalysis.

d.decisiontreeanalysis.

e.Noneoftheabove.

Difficultylevel:Easy

SENSITIVITYANDSCENARIOSANALYSIS

b38.Scenarioanalysisisdifferentthansensitivityanalysis

a.asnoeconomicforecastsarechanged.

b.asseveralvariablesarechangedtogether.

c.becausescenarioanalysisdealswithactualdataversussensitivity

analysiswhichdealswithaforecast.

d.becauseitisshortandsimple.

e.becauseitis'bytheseatofthepants'technique.

Difficultylevel:Medium

EQUIVALENTANNUALCOST

c39.Inthepresent-valuebreak-eventheEACisusedto

a.determinetheopportunitycostofinvestment.

b.allocatedepreciationoverthelifeoftheproject.

c.allocatetheinitialinvestmentatitsopportunitycostoverthelife

oftheproject.

d.determinethecontributionmargintofixedcosts.

e.Noneoftheabove.

Difficultylevel:Medium

BREAK-EVEN

b40.Thepresentvaluebreak-evenpointissuperiortotheaccounting

break-evenpointbecause

a.presentvaluebreak-evenismorecomplicatedtocalculate.

b.presentvaluebreak-evencoverstheeconomicopportunitycostsofthe

investment.

c.presentvaluebreak-evenisthesameassensitivityanalysis.

d.presentvaluebreak-evencoversthefixedcostsofproduction,which

theaccountingbreak-evendoesnot.

e.presentvaluebreak-evencoversthevariablecostsofproduction,

whichtheaccountingbreak-evendoesnot.

Difficultylevel:Easy

ABANDONMENT

d41.Thepotentialdecisiontoabandonaprojecthasoptionvaluebecause

a.abandonmentcanoccuratanyfuturepointintime.

b.aprojectmaybeworthmoredeadthanalive.

c.managementisnotlockedintoanegativeoutcome.

d.Alloftheabove.

e.Noneoftheabove.

Difficultylevel:Easy

TYPESOFBREAK-EVENANALYSIS

d42.Whichofthefollowingaretypesofbreak-evenanalysis

a.presentvaluebreak-even

b.accountingprofitbreak-even

c.marketvaluebreak-even

d.BothAandB.

e.BothAandC.

Difficultylevel:Easy

MONTECARLOSIMULATION

c43.Theapproachthatfurtherattemptstomodelrealworduncertaintyby

analyzingprojectsthewayonemightanalyzegamblingstrategiesis

called

a.gamblersapproach.

b.blackjackapproach.

c.MonteCarlosimulation.

d.scenarioanalysis.

e.sensitivityanalysis.

Difficultylevel:Medium

MONTECARLOSIMULATION

c44.MonteCarlosimulationis

a.themostwidelyusedbyexecutives.

b.averysimpleformula.

c.providesamorecompleteanalysisthatsensitivityorscenario.

d.theoldestcapitalbudgetingtechnique.

e.Noneoftheabove.

Difficultylevel:Easy

OPTIONSINCAPITALBUDGETING

d45.Whichofthefollowingarehiddenoptionsincapitalbudgeting

a.optiontoexpand.

b.timingoption.

c.optiontoabandon.

d.Alloftheabove.

e.Noneoftheabove.

Difficultylevel:Easy

III.PROBLEMS

Usethisinformationtoanswerquestions46through50.

TheAdeptCo.isanalyzingaproposedproject.Thecompanyexpectsto

sell2,500

units,giveortake10percent.Theexpectedvariablecostperunitis

$8andtheexpectedfixedcostsare$12,500.Costestimatesare

consideredaccuratewithinaplusorminus5percentrange.The

depreciationexpenseis$4,000.Thesalepriceisestimatedat$16a

unit,giveortake2percent.Thecompanybasestheirsensitivity

analysisontheexpectedcasescenario.

SCENARIOANALYSIS

d46.Whatisthesalesrevenueundertheoptimisticcasescenario

a.$40,000

b.$43,120

c.$44,000

d.$44,880

e.$48,400

Difficultylevel:Medium

SCENARIOANALYSIS

d47.Whatisthecontributionmarginundertheexpectedcasescenario

a.$

b.$

c.$

d.$

e.$

Difficultylevel:Medium

SCENARIOANALYSIS

c48.Whatistheamountofthefixedcostperunitunderthepessimistic

casescenario

a.$

b.$

c.$

d.$

e.$

Difficultylevel:Medium

SENSITIVITYANALYSIS

b49.Thecompanyisconductingasensitivityanalysisonthesalesprice

usingasales

priceestimateof$17.Usingthisvalue,theearningsbeforeinterest

andtaxeswillbe:

a.$4,000

b.$6,000

c.$8,500

d.$10,000

e.$18,500

Difficultylevel:Medium

SENSITIVITYANALYSIS

b50.Thecompanyconductsasensitivityanalysisusingavariablecostof

$9.Thetotal

variablecostestimatewillbe:

a.$21,375

b.$22,500

c.$23,625

d.$24,125

e.$24,750

Difficultylevel:Medium

Usethisinformationtoanswerquestions51through55.

TheCan-DoCo.isanalyzingaproposedproject.Thecompanyexpectsto

sell12,000

units,giveortake4percent.Theexpectedvariablecostperunitis$7

andtheexpectedfixedcostis$36,000.Thefixedandvariablecost

estimatesareconsideredaccuratewithinaplusorminus6percentrange.

Thedepreciationexpenseis$30,000.Thetaxrateis34percent.The

salepriceisestimatedat$14aunit,giveortake5percent.The

companybasestheirsensitivityanalysisontheexpectedcasescenario.

SCENARIOANALYSIS

a51.Whatistheearningsbeforeinterestandtaxesundertheexpectedcase

scenario

a.$18,000

b.$24,000

c.$36,000

d.$48,000

e.$54,000

Difficultylevel:Medium

SCENARIOANALYSIS

c52.Whatistheearningsbeforeinterestandtaxesunderanoptimisticcase

scenario

a.$22,

b.$24,

c.$37,

d.$52,

e.$67,

Difficultylevel:Challenge

SCENARIOANALYSIS

b53.Whatistheearningsbeforeinterestandtaxesunderthepessimistic

casescenario

a.-$

b.-$

c.-$

d.$3,

e.$5,

Difficultylevel:Challenge

SENSITIVITYANALYSIS

d54.Whatistheoperatingcashflowforasensitivityanalysisusingtotal

fixedcostsof

$32,000

a.$14,520

b.$16,520

c.$22,000

d.$44,520

e.$52,000

Difficultylevel:Medium

SENSITIVITYANALYSIS

d55.Whatisthecontributionmarginforasensitivityanalysisusinga

variablecostperunit

a.$3

of$8

b.$4

c.$5

d.$6

e.$7

Difficultylevel:Medium

VARIABLECOST

c56.Afirmisreviewingaprojectwithlaborcostof$perunit,raw

materialscostof

$aunit,andfixedcostsof$8,000amonth.Salesareprojectedat

10,000units

overthethree-monthlifeoftheproject.Whatarethetotalvariable

costsoftheproject

a.$216,300

b.$297,300

c.$305,300

d.$313,300

e.$329,300

Difficultylevel:Medium

VARIABLECOST

d57.Aprojecthasearningsbeforeinterestandtaxesof$5,750,fixed

costsof$50,000,a

sellingpriceof$13aunit,andasalesquantityof11,500units.

Depreciationis$7,500.

Whatisthevariablecostperunit

a.$

b.$

c.$

d.$

e.$

Difficultylevel:Medium

FIXEDCOST

b58.Ataproductionlevelof5,600unitsaprojecthastotalcostsof

$89,000.Thevariable

totalfixedcosts

a.$24,126

costperunitis$.Whatistheamountofthe

b.$26,280

c.$27,090

d.$27,820

e.$28,626

Difficultylevel:Medium

FIXEDCOST

e59.Ataproductionlevelof6,000unitsaprojecthastotalcostsof

$120,000.Thevariable

ofthetotalfixedcosts

a.$25,165

costperunitis$.Whatistheamount

b.$28,200

c.$30,570

d.$32,000

e.$33,000

Difficultylevel:Medium

CONTRIBUTIONMARGIN

c60.Wilson’sMeatshascomputedtheirfixedcoststobe$.60forevery

poundofmeat

theysellgivenanaveragedailysaleslevelof500pounds.They

charge$perpoundoftop-gradegroundbeef.Thevariablecostper

poundis$.Whatisthecontributionmarginperpoundofgroundbeef

sold

a.$.30

b.$.60

c.$.90

d.$

e.$

Difficultylevel:Medium

CONTRIBUTIONMARGIN

e61.RalphandEmma’sisconsideringaprojectwithtotalsalesof$17,500,

totalvariable

costsof$9,800,totalfixedcostsof$3,500,

andestimatedproductionof400units.The

depreciationexpenseis$2,400ayear.Whatisthecontributionmargin

perunit

a.$

b.$

c.$

d.$

e.$

Difficultylevel:Medium

ACCOUNTINGBREAK-EVEN

a62.Youareconsideringanewproject.Theprojecthasprojected

depreciationof$720,

fixedcostsof$6,000,andtotalsalesof$11,760.Thevariablecost

perunitis

$.Whatistheaccountingbreak-evenlevelofproduction

a.1,200units

b.1,334units

c.1,372units

d.1,889units

e.1,910units

Difficultylevel:Medium

ACCOUNTINGBREAK-EVEN

b63.Theaccountingbreak-evenproductionquantityforaprojectis5,425

units.Thefixed

costsare$31,600andthecontributionmarginis$6.Whatisthe

projected

depreciationexpense

a.$700

b.$950

c.$1,025

d.$1,053

e.$1,100

Difficultylevel:Medium

ACCOUNTINGBREAK-EVEN

d64.Aprojecthasanaccountingbreak-evenpointof2,000units.Thefixed

costsare

$4,200andthedepreciationexpenseis$400.Theprojectedvariable

costperunitis

$.Whatistheprojectedsalesprice

a.$

b.$

c.$

d.$

e.$

Difficultylevel:Medium

ACCOUNTINGBREAK-EVEN

a65.Aproposedprojecthasfixedcostsof$3,600,depreciationexpenseof

$1,500,anda

salesquantityof1,300units.Whatisthecontributionmarginifthe

projectedlevelof

salesistheaccountingbreak-evenpoint

a.$

b.$

c.$

d.$

e.$

Difficultylevel:Medium

PRESENTVALUEBREAK-EVEN

c66.Aprojecthasacontributionmarginof$5,projectedfixedcostsof

$12,000,projected

variablecostperunitof$12,andaprojectedpresentvaluebreak-

evenpointof5,000

units.Whatistheoperatingcashflowatthislevelofoutput

a.$1,000

b.$12,000

c.$13,000

d.$68,000

e.$73,000

Difficultylevel:Medium

PRESENTVALUEBREAK-EVEN

a67.Thompson&Sonhavebeenbusyanalyzinganewproduct.Theyhave

determinedthat

anoperatingcashflowof$16,700willresultinazeronetpresent

value,whichisa

companyrequirementforprojectacceptance.

Thefixedcostsare$12,378andthe

contributionmarginis$.Thecompanyfeelsthattheycan

realisticallycapture

10percentofthe50,000unitmarket

forthisproduct.Shouldthecompanydevelopthe

Whyorwhynot

newproduct

a.yes;because5,000unitsofsalesexceedsthequantityrequiredfora

zeronetpresent

value

b.yes;becausetheinternalbreak-evenpointislessthan5,000units

c.no;becausethefirmcannotgeneratesufficientsalestoobtainat

leastazeronet

presentvalue

d.no;becausetheprojecthasanexpectedinternalrateofreturnof

negative100

percent

e.no;becausetheprojectwillnotpaybackonadiscountedbasis

Difficultylevel:Challenge

PRESENTVALUEBREAK-EVEN

e68.KurtNealandSonisconsideringaprojectwithadiscountedpayback

justequaltothe

project’slife.Theprojectionsincludeasalespriceof$11,

variablecostperunitof

$,andfixedcostsof$4,500.Theoperatingcashflowis$6,200.What

isthebreak-

evenquantity

a.1,800units

b.2,480units

c.3,057units

d.3,750units

e.4,280units

Difficultylevel:Medium

DECISIONTREENETPRESENTVALUE

b

69.Atstage2ofthedecisiontreeitshowsthatifaprojectis

successful,thepayoffwillbe$53,000witha2/3chanceof

occurrence.Thereisalsothe1/3chanceofa$-24,000payoff.The

costofgettingtostage2(1yearout)is$44,000.Thecostof

capitalis15%.WhatistheNPVoftheprojectatstage1

a.$-13,275

b.$-20,232

c.$2,087

d.$7,536

e.Cannotbecalculatedwithouttheexacttimingoffuturecashflows.

Difficultylevel:Medium

Usethefollowingtoanswerquestions70-71:

TheQuick-StartCompanyhasthefollowingpatternofpotentialcashflowswith

theirplannedinvestmentinanewcoldweatherstartingsystemfor

fuelinjectedcars.

t=

t=1

CashFlowAfterTax

Invest

Success

Failure

Years2–5

.6

.4

$66,000,000/year

TestCost

$20,000,00

DoNotInvest

NPV=$0

NPV=$-20,000,000

Donot

DECISIONTREE

a

70.Ifthecompanyhasadiscountrateof17%,whatisthevalueclosest

totime1netpresentvalue

a.$million

b.$million

c.$million

d.$million

e.Noneoftheabove.

Difficultylevel:Challenge

DECISIONTREE

b71.Ifthecompanyhasadiscountrateof17%,shouldtheydecideto

invest

a.yes,NPV=$million

b.yes,NPV=$million

c.no,NPV=$million

d.yes,NPV=$million

e.No,sincemorethanonebranchisNPV=0ornegativeyoumustreject.

Difficultylevel:Challenge

ACCOUNTINGBREAK-EVEN

e72.TheMini-MaxCompanyhasthefollowingcostinformationontheirnew

prospectiveproject.Calculatetheaccountingbreak-evenpoint.

Initialinvestment:$700

Fixedcosts:$200peryear

Variablecosts:$3perunit

Depreciation:$140peryear.

Price:$8perunit

Discountrate:12%

Projectlife:5years

Taxrate:34%

a.25unitsperyear

b.68unitsperyear

c.103unitsperyear

d.113unitsperyear

e.Noneoftheabove.

Difficultylevel:Medium

PRESENTVALUEBREAK-EVEN

d73.TheMini-MaxCompanyhasthefollowingcostinformationontheirnew

prospectiveproject.Calculatethepresentvaluebreak-evenpoint.

Initialinvestment:$700

Fixedcostsare$200peryear

Variablecosts:$3perunit

Depreciation:$140peryear

Price:$8perunit

Discountrate:12%

Projectlife:3years

Taxrate:34%

a.68unitsperyear

b.75unitsperyear

c.84unitsperyear

d.114unitsperyear

e.Noneoftheabove.

Difficultylevel:Challenge

ACCOUNTINGBREAK-EVEN

d74.Fromtheinformationbelow,calculatetheaccountingbreak-evenpoint.

Initialinvestment:$2,000

Fixedcostsare$2,000peryear

Variablecosts:$6perunit

Depreciation:$250peryear

Price:$20perunit

Discountrate:10%

Projectlife:4years

Taxrate:34%

a.88unitsperyear

b.100unitsperyear

c.143unitsperyear

d.161unitsperyear

e.Noneoftheabove.

Difficultylevel:Challenge

PRESENTVALUEBREAK-EVEN

c75.Giventhefollowinginformation,calculatethepresentvaluebreak-

evenpoint.

Initialinvestment:$2,000

Fixedcosts:$2,000peryear

Variablecosts:$6perunit

Depreciation:$250peryear

Price:$20perunit

Discountrate:10%

Projectlife:4years

Taxrate:34%

a.100unitsperyear

b.143unitsperyear

c.202unitsperyear

d.286unitsperyear

e.Noneoftheabove.

Difficultylevel:Challenge

TIMINGOPTIONS

a76.Youareconsideringaprojectwhichhasbeenassignedadiscountrate

of8percent.If

youstarttheprojecttoday,youwillincuraninitialcostof$480

andwillreceivecash

inflowsof$350ayearforthreeyears.Ifyouwaitoneyeartostart

theproject,the

initialcostwillriseto$520andthecashflowswillincreaseto

$385ayearforthree

years.Whatisthevalueoftheoptiontowait

a.$

b.$

c.$

d.$

e.$

Difficultylevel:Challenge

TIMINGOPTIONS

a77.Wilson’sAntiquesisconsideringaprojectthathasaninitialcost

todayof$10,000.

Theprojecthasatwo-yearlifewithcashinflowsof$6,500ayear.

ShouldWilson’s

decidetowaitoneyeartocommencethisproject,theinitialcost

willincreaseby5

percentandthecashinflowswillincreaseto$7,500ayear.Whatis

thevalueofthe

optiontowaitiftheapplicablediscountrateis10percent

a.$1,

b.$1,

c.$1,

d.$1,

e.$1,

Difficultylevel:Challenge

OPTIONTOABANDON

c78.Yourfirmisconsideringaprojectwithafive-yearlifeandan

initialcostof$120,000.

Thediscountratefortheprojectis12percent.Thefirmexpectsto

sell2,100unitsa

year.Thecashflowperunitis$20.Thefirmwillhavetheoptionto

abandonthis

projectafterthreeyearsatwhichtimetheyexpecttheycouldsell

theprojectfor

$50,000.Atwhatlevelofsalesshouldthefirmbewillingtoabandon

thisproject

a.420units

b.1,041units

c.1,479units

d.1,618units

e.2,500units

Difficultylevel:Challenge

OPTIONTOABANDON

e79.Yourfirmisconsideringaprojectwithafive-yearlifeandan

initialcostof$120,000.

Thediscountratefo